Make sure to submit the answers sheet on Saturday October 25th at 10:30 am.

Receiving answers after this time will not be accepted.

Elrazi University

Microeconomics
2nd Year Business Administration (BA) - 1st. Semester4102
Problem Sets - 1
Section One (10 points) : choose the right answer
1) Demand side in the market represents
a.
b.
c.
d.

group of sellers
group of buyers
group of buyers and sellers
None of the above-mentioned is right.

2) The Law of the Demand means:

a.
b.
c.
d.

An increase in the price leads to decrease in the quantity demanded.

An increase in the price leads to an increase in the quantity supplied.
A decrease in the prices makes the quantity demanded to increase.
(a) and (c)

3) Variables that shift the demand curve either to the right or to the left are
a.
b.
c.
d.
e.

Peoples income
Prices of a good itself.
Peoples expectations
Number of buyer and sellers
(a) and (c)

4) An increase in income leads to an increase in the quantity demanded of .

a.
b.
c.
d.

Normal goods
Inferior goods
Both normal and inferior goods
Neither one.

5) An increase of input prices shifts the supply curve .

a. To the left
b. To the right
c. Neither to the left nor to the right

Make sure to submit the answers sheet on Saturday October 25th at 10:30 am.
Receiving answers after this time will not be accepted.
6) Equilibrium point is where the
a. The quantity supplied equals the quantity demanded
b. The quantity supplied greater than the quantity demanded
c. The quantity demanded greater than the quantity supplied
7) Total Revenue is computed as ..
a.
b.
c.
d.

The price minus the quantity demanded

The price minus the quantity supplied
The price times the quantity demanded
The price divided by the quantity demanded

8) Price elasticity of demand is calculated as

a. Percentage change in the quantity demanded divided by the percentage change in the
price
b. Percentage change in the quantity supplied divided by the percentage change in the price
c. Percentage change in the quantity demanded divided by the percentage change in the
income
9) When goods are inferior goods, the income elasticity of demand means that
a. Quantity demanded and income move in the opposite direction, inferior goods have
positive income elasticity.
b. Quantity demanded and income move in the opposite direction, inferior goods have
negative income elasticity.
c. Quantity demanded and income move in the same direction, inferior goods have negative
income elasticity.
d. Quantity demanded and income move in the same direction, inferior goods have positive
income elasticity.
10) If the demand curve is unit elastic, which means price exactly equals one,
a.
b.
c.
d.

Total revenue remain constant, when prices change

Total revenue change when prices change
Total revenue change when prices remain constant
Total revenue remains constant when there is no change in the price.

Make sure to submit the answers sheet on Saturday October 25th at 10:30 am.
Receiving answers after this time will not be accepted.
Section Two: (20 points)
1- Use midpoint method to calculate the price elasticity of demand and total
revenue. And decide whether the demand is elastic or in elastic.

Table-1
Price

Quantity
Demanded

Total Revenue

Percentage
change in
price

12

3
2
1
0

8
10
12
14

percentage
change in
quantity

Price
Elasticity
Of
Demand

Description

200

13

Elastic

15

2- Table-2 shows the price of DVDs and the quantity demanded, when income equals
$10,000 and when income equals $12,000
a- Use the midpoint method to calculate the price elasticity of demand as the price of DVDs
increases from $8 to $10 if (i) your income is $10,000 and (ii) your income is$12,000.
b- Calculate the income elasticity of demand as your income increases from $10,000
to$12,000 if (i) the price is $12 and (ii) the price is $16.

Table-2

price
$8
$10
$12
$14
$16

Quantity
Quantity
Demanded
Demanded
income =
income= $12,000
$10,000
40
32
24
16
8

50
45
30
20
12

Make sure to submit the answers sheet on Saturday October 25th at 10:30 am.
Receiving answers after this time will not be accepted.
Section -3 (20 points)
1- Use the diagram below to illustrate shift in the demand curve, supply curve or both
together. Suppose that input prices increased and a new buyer quit (got-out) the market
I.
Examine what happened to the demand, supply curves, Equilibrium price (new & old),
equilibrium quantity (new & old), and the equilibrium point (new & old)?
II.

What happened to the equilibrium price and equilibrium quantity?

III.

Identify the area of total revenue (New & old)?

Price of TV

1
QS

Qd
Quantity of TV

2- Suppose that when the price of a burger decreases from $2.00 to $1.75 and other things
remain the same, the quantity demanded of burgers increases from 200 an hour to 400 an
hour and the quantity demanded of pizza decreases from 400 an hour to 200 an hour. At
the same time, the quantity demanded of soda increases from 150 an hour to 300 an hour.
Support your answer using a diagram?
IV.

Calculate the cross elasticity of demand for soda with respect to burgers.

V.

Calculate the cross elasticity of demand for pizza with respect to burgers.

3- When Alis income increases by 10 percent and other things remain the same, Ali
decreases the quantity demanded of macaroni and cheese by 20 percent and increases the
quantity demanded of chicken by 5 percent.
Support your answer using a diagram?
VI.
VII.

Calculate the income elasticity of demand for macaroni and cheese.

Calculate the income elasticity of demand for chicken.